Hockey Headlines

Saturday, 9 May 2009

There's no denying that hockey in Canada is popular. We claim it as our national sport. We follow it as religiously as Catholics follow The Pope. When the news was announced a few days ago that Research-In-Motion CEO Jim Balsillie was attempting to buy the Phoenix Coyotes and move them to southern Ontario after current Coyotes' owner Jerry Moyes placed the franchise into Chapter 11 bankruptcy, it came as both a shock and a surprise to the NHL and NHL fans everywhere. While it has been no secret that the Coyotes have been struggling in the Arizona desert, moving the team was never discussed in terms of "saving" the franchise. After all, this is a franchise that packed up the moving trucks once already when they left Winnipeg for Phoenix.

There are a number of questions being asked about how the deal between Balsillie and Moyes came to be, how the NHL could have no knowledge of the deal, and, ultimately, what will happen to the Phoenix Coyotes. I can't answer all of these questions as I'm not a bankruptcy lawyer. I do pledge that my research over the last few days has given me some insight in regards to the ongoing court battle being waged between the Balsillie-Moyes alliance and the NHL. Today, I want to help my readers understand this whole debacle a little better so that they may form an opinion one way or another.

Let me clear, though: I do not know everything. I have experienced what the people of Phoenix are going through right now in terms of losing their NHL franchise, so I have some first-hand perspective, but I am, by no means, an expert. This is simply a collection of information from across the hockey spectrum with a few of my own opinions (which I'll make clear).

1992: Jim Balsillie joins RIM by putting up $250,000 of his own money as an investor. This same year, RIM discovers a way to send and receive messages via a pager, thus prompting their focus to move away from pagers and into two-way wireless communication.

1997: RIM goes public on the Toronto Stock Exchange. In their first year as a publicly-traded company, RIM raises more than $115 million from investors.

1998: RIM introduces its first Blackberry. While still primitive in terms of today's Blackberries, it was a monumental step forward for RIM. It offered a six-line display and allowed basic e-mail and two-way paging. After signing several lucrative deals with cellular companies, RIM is named as one of Canada's fastest-growing companies.

1999: RIM is listed on the NASDAQ exchange, allowing the company to gain another $250 million in capital through investors for its Blackberry technology. RIM introduced the BlackBerry 850 Wireless Handheld, the first handheld wireless device to offer a QWERTY keyboard along with email and complete wireless features.

2001: RIM is sued by NTP Incorporated of Virginia for patent-infringement.

2002: RIM adds voice and data transmission to its line of Blackberries. Email is also upgraded to allow users to access multiple email accounts.

2006: RIM settles the lawsuit with NTP by agreeing to a one-time payout of $612.5 million USD. This payout secures RIM the right to a "perpetual, paid-up licence going forward", giving RIM full control of the Blackberry technology without further payments to NTP. On October 5, Jim Balsillie agrees in principle to buy the Pittsburgh Penguins for $175 million USD, pending approval of the NHL Board of Governors. On December 15, Balsillie withdraws his offer to buy the Penguins after being told by the NHL that the franchise would have to remain in Pittsburgh.

2007: On May 24, Jim Balsillie agrees to purchase the Nashville Predators from owner Craig Leipold for $238 million USD. On May 31, Balsillie activates a lease option through Copps Coliseum in Hamilton, Ontario, and begins taking deposits on season tickets despite there being no team officially in Hamilton. On June 27, Craig Leipold ends the agreement with Jim Balsillie, and opts to sell the team to William (Boots) Del Biaggio for $190 million USD. On October 23, Alcatel-Lucent announces an agreement to distribute BlackBerry smartphones in China, prompting RIM shares to jump up by 8 cents. RIM officially is the most valuable Canadian company, based upon market capitalization, and its shares have increased by 150% since the start of the year.

2008: On May 6, it is revealed that Jim Balsillie had contacted Buffalo Sabres owner Tom Golisano in an attempt to purchase that franchise. Golisano reportedly would only consider offers that keep the team in western New York.

2009: On May 5, Jim Balsillie enters into an agreement with Jerry Moyes to purchase the Phoenix Coyotes from Moyes on the condition that the team be moved to southern Ontario. Balsillie's offer of $212.5 million USD is accepted by Moyes, but the NHL steps in and the entire proceeding ends up in bankruptcy court.

According to Forbes.com as of 2007, Jim Balsillie's estimated net worth was $1.6 billion, making him the 618th richest person on the planet at that time. Now? It would have to be higher based upon the success of the Blackberry and RIM's continued growth.

Clearly, Mr. Balsillie has the financial backing to support an NHL franchise. There's no debating how much he is worth or the success of his business. However, according to the timeline, this is the fourth time he has flirted with an NHL team in his efforts to add a third franchise to southern Ontario. If he was denied the previous two times when he tried to move Pittsburgh and Nashville, does he really think that he will be successful with Phoenix?

If you speak to his people, the answer is a resounding "yes". I received an email from a lady on his team that indicated Mr. Balsillie's website, makeitseven.ca, had broken the 100,000 signature mark for his online petition. That's a lot of names of people who want to see hockey in southern Ontario, but one has to consider the population of the "Golden Horseshoe" area. If the total population in that area is 8.1 million people, 100,000 names is just over 1% of that population. That's not such a good number when one wants to drum up public support. However, his site continues to accept names, so that number will only grow.

Where this entire academic case will play out is in a courtroom in Phoenix. As CBC.ca's Scott Morrison writes, the first major hurdle for the Balsillie-Moyes team to clear is to have a bankruptcy judge accept the Chapter 11 filing by Moyes and the subsequent purchase by Balsillie. This leads to the second hurdle of the auction of the team whereby anyone can bid for the Coyotes as long as that bid exceeds Mr. Balsillie's bid of $212.5 million by $5 million. Thanks to the economic climate in Phoenix, it's extremely doubtful anyone would outbid Mr. Balsillie for a franchise that has never posted a profit in the desert. The only way that someone may swoop in and bid for the team is if the city of Glendale makes a lot of concessions for the Coyotes franchise. Again, extremely doubtful.

There is a major hurdle facing Balsillie and Moyes right now. The court needs to decide who owns the Coyotes. After the NHL bailed out the Coyotes with the provision that if the Coyotes were unable to repay the loan, the NHL would take over the team's operations. There is a precedent in the sports world for this. Major League Baseball took over the operations for the Montreal Expos in 2006 until it found a suitable new owner for the franchise. This is essentially what the NHL did in this agreement with the Coyotes. Of course, with the Coyotes hemorrhaging money, owner Jerry Moyes would never be able to repay the loan, thus giving control to the NHL.

Because the league was financing the team, this gives the NHL incredible power. It could essentially have decided to move the team, but Gary Bettman had already lined up potential owners to purchase the team from the financially-struggling Jerry Moyes. Rumours were abound that the offers for the team would be significantly less than the $212.5 million that Jim Balsillie offered, meaning that Moyes would stand to simply receive a payment for the team rather than securing the largest profit he could.

By filing the Chapter 11 motion, Moyes essentially broke the lease with the city of Glendale and the Jobing.com Arena, and allowed any potential owner to bid for the franchise. This happened without the NHL's knowledge, and seems to have broken the agreement that the league made with the Coyotes after they paid the bills for the franchise. So the major question that looms right now: who owns the Coyotes? This should be decided before the end of May. Moyes' major question in all this: if he wasn't in control of the team, why did the league strip him of all official titles with Coyotes on May 5?

In the event that the bankruptcy court sides with Balsillie and Moyes on the sale of the franchise, there's still another major court battle looming on the horizon. The NHL Board of Governors has to approve the sale of a franchise to a prospective owner. However, if the bankruptcy court approves the sale, this will throw a major monkey wrench into the NHL's policies. Does the court have the power to grant ownership in a private league affiliation above that affiliation's policy? This one will undoubtedly be a point of contention for both sides, and one the NHL will defend vigorously.

And what if the bankruptcy judge accepts Balsillie's bid on the condition that the franchise must remain in Phoenix? There are significant benefits to having an NHL franchise in a city, not to mention the immediate economic impact. The judge's responsibility in this case is to get the maximum offer to pay out the secured and unsecured creditors as possible, and that offer currently is the one made by Jim Balsillie. If this is the case, then the issue of who owns the Coyotes comes up for debate again.

The Globe and Mail's Dave Shoalts is in Phoenix right now trying to get some straight answers to some tough questions. The only problem? Nobody is talking. All of the Coyotes' employees have been told not to answer questions from the media. Even the local businesses near the Jobing.com Arena are keeping quiet on the entire process since their businesses will be affected if the Coyotes move.

The NHL owners have weighed in on these developments as well. One owner told Shoalts that he will side with Bettman, despite liking Balsillie, because "I support the process. If you don't, you have chaos and anarchy."

And that's entirely true. The NHL doesn't care about who owns what team. They've made questionable choices for ownership before as seen in the cases of Boots Del Biaggio, John Spano, John Rigas, Dennis Kozlowski, Greg Reyes, and Henry Samueli. But the problem is that all of these men have owned NHL teams. In the case of Balsillie, it's all about following policy.

Yes, some will claim that there is a general dislike between NHL Commissioner Gary Bettman and RIM CEO Jim Balsillie. The problem with that argument, though, is that neither man knows one another outside of their business contact - namely, Balsillie's attempts to circumvent the policies and procedures of owning a team and moving it to southern Ontario. As the owner above stated, without following the process, you have anarchy and choas - exactly what is going on in Phoenix right now.

Mike Chen of Kukla's Korner allowed for readers to ask Balsillie's team questions about his potential purchase of the Coyotes. There are some very good questions in there, but the two that I asked were directly towards the hurdles that I explained above. They read as follows:

If the courts rule in favor of Mr. Balsillie, how will he react if the NHL Board of Governors does not approve a sale or a move? Why make a behind-the-scenes deal with Mr. Moyes if the feasibility of the move is conditional based on Board of Governors approval?

We don’t want to make predictions at this point in the process. We want to respect the legal process that the team is going through and we respect the process that the league is going through. All we ask is that people look at this as a smart and logical business decision from a smart and logical businessman.

Why didn’t Mr. Balsillie simply express his desire to own the team first before creating a conditional movement clause that allows him to move the team without the NHL’s blessing? In a league where Board of Governor approval is required for so many things, isn’t this essentially trying to sidestep rules and policies?

On Tuesday, the Phoenix Coyotes ownership asked Mr. Balsillie provide bridge financing to help the team through bankruptcy and to make an offer to buy the team. As a passionate hockey fan, he agreed to do this but wanted to ensure he was able to bring the team to Southern Ontario - hence the condition inserted into the agreement.

There are no real answers given to either question, which is to be expected at this point. There is some truth in the answers, but it's nothing more than PR rhetoric. Of course, neither side knows what the outcome will be, and neither side is willing to lay their cards on the table at this point. This is to be expected.

Nothing has been decided yet, and this entire piece was to bring to light some of the issues facing both sides at this point. May 19 is the next date for boths sides to be in court, and there is some hope that answers will begin to emerge. Until then, you can draw your own conclusions as to who is right and who is wrong, but my feeling right now is that the NHL has the upper-hand simply due to their processes.

The only people who are going to win in this whole thing are the lawyers.

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